Lady Dr. GHAZALA AMJAD, ABBOTTABAD VS SECRETARY, REVENUE DIVISION, ISLAMABAD, 2007 PTD-FEDERAL-TAX-OMBUDSMAN-PAKISTAN 1186 (2004)

Income Tax Ordinance (XXXI of 1979)---

----Ss.135, 132(2), 129(2), 146 & 156---Income Tax Ordinance (XLIX of 2001), S.221---C.B.R. Circular No.10 of 1960---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.2(3)---Disposal of appeal---Decision in appeal---Inquiry by Inspector---Rectification of mistake,--Maladministration---Assessment and the appellate order for the year 1998-99 and subsequent assessments for the years 2000-2001 to 2002-2003 were contested as unlawful on the ground that enquiry by Income Tax Inspector was conducted without approval from the competent Authority---Appellate Additional Commissioner had enhanced the income in appeal illegally, along with other objections---Department had controverted the allegations and had alleged that complainant did not attend the proceedings therefore case was finalized on the basis of Inspector's report and subsequently effect of decision in appeal was given---Subsequent assessments were finalized keeping in view the immediate history of the case---Validity---Appellate order showed that income computed on the basis of such order exceeded the income assessed---No opportunity of showing cause for such enhancement was given---Enquiry conducted by the Income Tax Inspector was illegal---Such report was relied upon by Appellate Additional Commissioner---Federal Tax Ombudsman exercised jurisdiction to investigate the case and recommended that Appellate Additional Commissioner should rectify the appellate order under section 221 of the Income Tax Ordinance, 2001 after providing an opportunity of hearing to the complainant and Commissioner should amend the assessment orders for the assessment years 2000-2001 to 2002-2003 consequent to the appellate order.

Zafar Elahi for the Complainant.

Asif Haider Orakzai, DCIT for Respondent.

DECISION/FINDINGS

Brief facts of the case are that the complainant is a lady doctor. For the assessment year 1998-99 she filed Return declaring income of Rs.32,500. The assessment was made ex parte on 30-6-2001 at a net income of Rs.80,000 on the basis of circle Inspectors enquiry report, dated 8-6-2001.

2. The assessment was agitated in appeal and the Appellate Additional Commissioner (AAC) disposed of the appeal vide order, dated 30-3-2003 with certain directions of calculating income on the basis of number of patients, fees charged and the allowance of P&L expenses.

2.1 As a result of the appeal effect, the income of the complainant worked to Rs.155,700 instead of income originally assessed at Rs.80,000. On this basis the assessments for the subsequent years i.e. 2000-2001 to 2002-2003 were made at net income of Rs.160,000, Rs.165,000 and Rs.170,000 respectively.

2.2 The assessment and the appellate order for the year 1998-99 and subsequent assessments for the years 2000-2001 to 2002-2003 were contested as unlawful for the reasons which are summarized as under:--

(i) Ex parte assessment for the year, 1998-99 has been framed without service of notice.

(ii) Inspector's enquiry report on which the assessment was based was unlawful as the enquiry was enquiry was conducted without approved from the competent Authority under section 146 of the Income Tax Ordinance, 1979. The statement of the complainant's spouse received by the Inspector was not valid and binding on the complainant.

(iii) The appellate order of the AAC which was also based upon the Inspector's report was wrong.

(iv) Number of working days have been considered at 365 whereas normally the working days are between 250 to 300.

(v) Income of the whole hospital has been assessed in the hands of the complainant which is unjustified because the complainant runs a clinic in Mahida Hospital and is surrounded by as many as six other clinics running under the title of Mahida Hospital.

(vi) Curtailment of P&L expenses was unjust and arbitrary.

(vii) The income assessed at Rs.160,000, Rs.1,65,000 and Rs.170,000 for the years 2000-2001 to 2002-2003 was without any basis and the assessment was finalized on the appearance of Mr. Shahnaz employee of the complainant, who had attended to request for adjournment and was not authorized to represent in the assessment proceedings.

It was prayed that the assessment order and the appellate order be ordered to be rectified.

3. The respondent, in his reply, raised preliminary objection that as the matter related to the assessment of income for which remedy of appeal was available to the complainant, the case fell outside the jurisdiction of the F.T.O.

3.1 It was further submitted that the AR of the complainant did attend the proceedings but did not furnish the requisite details and documents. The case was therefore finalized on the basis of ITI's report, which has been found to be correct by the AAC. The income for the year, 1998-99 automatically swelled up after giving effect to the decision of appeal and no addition, whatsoever, has been made by the Assessing Officer. It was further submitted that the assessment proceedings were conducted strictly in accordance with law. Opportunity of being heard was provided to the complainant but she failed to defend her case properly. The assessments for the years, 2000-2001 to 2002-2003 were finalized keeping in view the immediate history of the case, upheld at the appellate level. As regards the plea that the clinic of the complainant was surrounded by other clinics, she did not take this plea at the time of original assessment.

4. The representatives of the both sides appeared and reiterated their contentions which were heard and the relevant record was examined. Both the Assessing Officer and the AAC have based their orders for the assessment year 1998-99 on the Inspector's enquiry report. However, the Assessing Officer did not discuss the contents of the Inspector's report in the assessment order and after simply referring to the report assessed the net income at Rs.80,000.

4.1 The AAC in her order gave certain directions for computation of complainant's income on the basis of Inspector's report. The relevant portion of the appellate order of the AAC is reproduced below:

"The appellant in her statement recorded by Inspector admitted daily number of patients at 6 to 8 with fee at Rs.70 and the Inspector by taking lenient view has proposed the same at 6 with admitted fee of Rs.70. Similarly, delivery cases admitted at 4 to 5 with charges per case at Rs.1,500 to 2,000 have been proposed at 5 with Rs.1,700 respectively. Whereas despite of the appellant's admission, sale of medicines has not been taken into account in the year under appeal. Although taking a lenient view on the basis of Inspector's report the Assessing Officer has already given retrospective effect to the enquiry report. However, delivery cases taken at 5 are slightly excessive which are reduced to 4. Average fee at Rs.1,700 being reasonable is maintained. Similarly, OPD patients taken at 6 with admitted fee of Rs.70 being reasonable is also maintained. However, the Assessing Officer is directed to allow P&L expenses @ 25% of the total gross receipts. The appeal partially succeeds and partially rejected as indicated above".

5. The Assessing Officer gave effect to the appellate order and computed the income as follows:--

6. Taking the income computed for the assessment year 1998-99 as the basis, income for the subsequent years was taken at enhanced figures as enumerated in para. 2.1 supra.

7. The assessment order of the year, 1998-99 stands merged in the appellate order, dated 30-3-2003. From the plain reading of the appellate order it appears that the AAC, while giving her directions, was not conscious of the fact that income computed on the basis of her order would exceed the income assessed. Both the Repealed Ordinance and the Income Tax Ordinance, 2001 provided, in sections 132(2) and 129(2) respectively, that the AAC shall not enhance the assessment unless the appellant has been given a reasonable opportunity of showing cause for such enhancement. The enhanced income worked out on the basis of A.AC's order has become the cause of grievance for the complainant which demands redressal. Further, though the AAC observed that the Inspector had conducted the enquiry without permission from the IAC, she still relied on the report. This is a clear case of maladministration and the FTO has jurisdiction to investigate such cases.

8. In view of the facts and circumstances of the case, the order of the AAC required rectification. There may not be a mistake on the face of record in the said order but a mistake of law can also be rectified as envisaged in C.B.R.'s Circular No.10 of 1960 in which the scope of section 156 of the repealed Income Tax Ordinance, 1979 has been explained as under:--

"The Board have noticed that some officers give a very narrow meaning to section 35 of the Income Tax Act. They think that only mistakes apparent on the face of the records and errors of clerical or arithmetical nature can be rectified under section 35. This is wrong. Section 35 is much wider in its application".

"Equally wide meaning was given to the section by the Supreme Court of India in M.K. Vankatachalam, Income Tax Officer and another v. Bombay Dying and Manufacturing Company Limited-1958 (34) ITR 143 Gajengragadkar (J.) who delivered judgment of the Supreme Court remarked "if a mistake of fact apparent from the record of assessment order can be rectified under section 35, we see no reason why a mistake of law which is glaring and obvious cannot be similarly rectified".

9. In view of the above discussion, it is recommended that:

(i) The Appellate Additional Commissioner to rectify the appellate order under section 221 of the Income Tax Ordinance, 2001 after providing an opportunity of hearing to the complainant.

(ii) The Commissioner to amend the assessment orders for the assessment years 2000-2001 to 2002-2003 in consequent to the appellate order as per pars (i) above.

(iii) Compliance in respect of paras. (i) and (ii) be reported within 45 days of the receipt of this order.

M.I./287/FTOOrder accordingly.